behavioural finance

A Discussion of

Behavioural Finance

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Introduction

A lot of analysts are trying to know the truth and separate the myth about the stock market . Is the efficient market theory really correct Which explains that the stock market automatically just adjust in time Or from the side of behavioral scientists such as Werner De Bondt and Richard Thaler who have studied that the reaction of people and saw the effects of this reaction in relation to the stock market . The purpose of this essay is

to try to answer the question raised by both De bond and Thaler and discuss what their basis was on coming up with their own study . This study will also provide a discussion and tackle the criticism on Efficient Market theory and criticism on Behavioural Finance as well

And lastly as evidence on De Bondt and Thaler 's theory this essay will provide examples of events on the stock market that has led to the birth of behavioural finance

Overreaction

The basis of overreaction have not really originated from both De Bondt and Thaler , fundamental stock price experts Benjamin Graham and David Dodd have stated in their book Security Analysis , that investors always if not a lot of times misinterpret the stock market and has led these investors astray with losses incurred by wrong decisions of both buying and selling (Graham and Dodd 2008 . A lot of stock investors based their decisions to either buy or sell based on emotions and...